Dealers gain licences to trade HK property derivatives

Five dealers have secured licences to trade residential property derivatives based on the University of Hong Kong real estate index series (HKU-REIS). The firms – Deutsche Bank, Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley - join ABN Amro and Sun Hung Kai Financial, which traded the first property derivatives in Hong Kong in February.

“Following the success of property derivatives in Europe, the HKU-REIS enables Asia investors a new way to gain liquid exposure to real estate,” said Connie Choi, a Hong Kong-based executive director in the fixed-income, currency and commodities division at Goldman Sachs.

Andrew Chan, vice-president for property derivatives trading at Merrill Lynch in Hong Kong, believes Hong Kong will become a forerunner in the property derivatives market in Asia. He said this is “integral to an eventual global platform for better managing real estate investments and risks”.

The HKU-REIS is a series of monthly real estate price indexes that track the change in price of residential properties. The index series is based on transactions registered with Hong Kong’s Land Registry and currently comprises four indexes.

The University of Hong Kong all residential price index (HKU-ARPI) covers the whole of Hong Kong and is a value-weighted average of three sub-indexes for the three regions of Hong Kong: Hong Kong island (HKU-HRPI), Kowloon (HKU-KRPI) and New Territories (HKU-NRPI).